Portugal deficit goals intact, but new easing an option: EU

LISBON Mon May 27, 2013 11:18am EDT

Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem (L) and Portuguese Finance Minister Vitor Gaspar arrive for their joint news conference in Lisbon May 27, 2013. REUTERS/Jose Manuel Ribeiro

Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem (L) and Portuguese Finance Minister Vitor Gaspar arrive for their joint news conference in Lisbon May 27, 2013.

Credit: Reuters/Jose Manuel Ribeiro

LISBON (Reuters) - Portugal has not requested any new easing of budget goals set out under its bailout, but its European partners could consider more flexibility if its long recession worsens while reforms remain on track.

The chairman of the euro zone finance ministers, Jeroen Dijsselbloem, said on Monday in Lisbon it was important for Lisbon to stick to its recently revised budget targets and to carry out structural reforms.

"There is a great appreciation in the Eurogroup on how Portugal is tackling challenges, with the economy doing worse than expected," Dijsselbloem told a news briefing.

"If, on the basis of effort, compliance and reaching structural targets, more time is necessary due to economic setbacks, more time will be considered," he said, adding that the European Commission supported that stance.

Last week, Prime Minister Pedro Passos Coelho acknowledged that Portugal may require a further easing of the goals agreed with its EU and IMF lenders for 2014.

Under the terms of a 78 billion euro ($100.9 billion) bailout agreed in 2011 and last revised in March, Lisbon must reduce the public deficit to 5.5 percent of GDP this year from last year's 6.4 percent, then to 4 percent in 2014 and 2.5 percent in 2015.

"Now the Portuguese government is fully committed to work on that basis," Dijsselbloem said.

Finance Minister Vitor Gaspar told reporters "we cannot rule out that further flexibility (for deficit goals) may be used in the future, but only if circumstances make it necessary".

Portugal's worst recession since the 1970s is in its third year, with the economy expected to slump 2.3 percent in 2013.

Gaspar also called for the creation of a banking union in Europe as an important step in helping Portugal out of its crisis by improving the financing conditions for its ailing companies. Dijsselbloem said "we want to bring forward the banking union as soon as possible".

Germany has demanded an EU-treaty change before launching a single resolution mechanism for such a union.

($1 = 0.7734 euros)

(Reporting By Daniel Alvarenga; Writing by Andrei Khalip; Editing by Catherine Evans)